The Internal Revenue Service's Form 990-T (Exempt Organization Business Income Tax Return) is intended to account for income generated in an ordinary trade or business that's not "substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption."
Many organizations, however, are eligible for refunds by simply filling out Form 990-T. It's a benefit especially worth utilizing for nonprofits – even those not paying income taxes. All tax-exempt small employers providing a minimum level of health insurance coverage to their employees should explore options, specifically seeking to determine whether they qualify for the Credit for Small Employer Health Insurance Premiums.
In most cases, small employers are eligible if they meet the following criteria:
- The organization pays premiums for employee health insurance coverage under a qualifying arrangement
- There are fewer than 25 full-time or full-time-equivalent employees within the tax year
- The organization pays average annual wages of less than $50,000 per full-time employee for the tax year
Qualifying organizations will receive a credit that usually amounts to 25 percent of the premiums, though there may be a limit imposed based upon the applicable payroll taxes paid. The refundable credit may be claimed on Form 990-T, and has proven to be useful for nonprofits and small businesses that have taken advantage of it since its enactment in 2010. Eligible nonprofit organizations who don't take advantage of the credit are essentially leaving money on the table.
Companies only paying a portion of the premiums – and having employees pay the rest – will only have the portion they pay taken into account for the sake of the qualification process. In the interest of enhancing transparency and clarity surrounding qualification terms, the IRS has also defined the following purposes as they pertain to the credit:
- Health insurance coverage
- Qualifying arrangements
- Employers treated as single employers, including members of affiliated groups or those under common control
It should be noted that the obligation to file Form 990-T comes on top of the obligations for filing annual information returns, including Form 990, 990-EZ or 990-PF. A separate 990-T must be completed for each tax year by qualifying organizations, excluding title-holding corporations and any other entities receiving their earnings and filing a consolidated return under section 1501 of the Internal Revenue Code.
Individuals and organizations seeking more information should consult with a LaPorte nonprofit industry group professional.